Rupiah and stock market continue to gain ground

JAKARTA (JP): The rupiah surged yesterday by another 100 points against the U.S. dollar and stock prices increased 1.67 percent.

Foreign exchange dealers said spot rupiah, which opened at 2,780/2,810, strengthened and broke the resistance level of 2,700 to 2,650 in morning trading and closed at 2,670/2,690.

One local foreign exchange bank dealer said the current tight monetary policy had forced local players to sell their dollar to meet their rupiah obligations.

"Trading is quite big today with several local banks selling dollar to back up their rupiah liquidity," said one local foreign exchange bank dealer.

He said the government's efforts to stabilize the rupiah through the tight monetary policy had borne fruit.

"I salute the government's success in stabilizing rupiah. It proves that our economic fundamentals are really good," the dealer said.

Coordinating Minister for Economy and Finance Saleh Afiff said yesterday the government had achieved its first target to bring rupiah below the upper level of Bank Indonesia's (the central bank) now defunct intervention band (Rp 2,378-2,682 against the U.S. dollar).

"We have been successful in forcing the rupiah to cross below the upper level of the defunct intervention band. And we foresee that the rupiah will continue to strengthen," Afiff told journalists.

The rupiah fell to an historic low of 3,045 against the greenback after the central bank floated the rupiah last week in the wake of sustained speculative attacks on regional currencies.

The rupiah started recovering following the central bank's shock increase of interest rates Tuesday. It doubled one-week Bank Indonesia Certificates (SBI) to 20 percent, 2 to 22 percent, one-month to 30 percent and 3 to 28 percent.

Afiff reiterated yesterday that the government would continue to tighten rupiah for some time until market jitters calmed down and the rupiah stabilized.

Businessman Sofyan Wanandi yesterday urged the government to gradually ease the tight rupiah liquidity to give businesses a chance to breathe.

Sofyan said most businesspeople did not know what to do with their businesses as rupiah remained tight.

"Businesspeople are confused and have lost direction as they don't know when the tight monetary policy will end. Consequently, many of them have entered the frenzy to take benefit of the situation," Sofyan said.

He suggested the central bank gradually cut their SBI rates and supply rupiah bit by bit to signal to businesses that the tight monetary policy would end soon.

Meanwhile, share prices on the Jakarta Stock Exchange ended higher yesterday as the strengthening of the rupiah boosted sentiment, stock brokers said.

But news that Standard & Poor's downgraded outlook for some of the country's largest banks pared some gains, they added.

The Jakarta composite index again broke the 600 level, jumping 9.89 points, or 1.67 percent, to close at 603.06 points.

Advancers led decliners by 103 to 34 with 50 stocks unchanged.

Total turnover was 451.08 million shares, valued at Rp 1.07 trillion (US$399 million).

ANZ Securities' head of research, Tom Soulsby, said the increase was a result of "bottom fishing" from investors as they saw many good stocks were already very cheap.

"Foreign investors have returned today and have been active buying good value stocks," Soulsby said.

He said many share prices were already undervalued as the overall market had declined by 35 percent in dollar terms during the last three weeks.

But he warned the stock market would continue to be volatile as long as uncertainties in the currency market remained. (jsk/rid)

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